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William is an Assistant Professor at Mount Saint Vincent University in the Department of Business Administration and Tourism and Hospitality Management. He is fascinated by research around how individuals construct and create their social realities, intrigued with the powers of creativity and innovation, and an avid proponent of outstanding service experiences. When not teaching, writing, or researching, he tries to spend time with his family and occasionally paint. He is currently completing his PhD in Management at Saint Mary’s University.

Monday, June 6, 2011

Understanding Value from the Customer's Chair

In my last blog post about the airline industry, I spoke about the low cost pricing strategy currently used by many airline companies. These companies are trying to ‘create’ value. In essence, they have stripped bare every single service as a separate consumable. The logic here is to provide consumers with freedom of choice. You can pick this service but not that service - everything is a la carté

When you fly with most airlines, you pay separately for:
  • The flight
  • Your checked baggage
  • Your choice of seat
  • Possible flight changes
  • Food
  • Select beverages

Here’s the fundamental problem with this pricing structure: it completely fails to consider HOW value is created and WHO creates it.

Customers determine value. A product or service has no value until it is assigned by the customer. Me.

Value is determined through a combination of a) the quality of the product or service, b) the responsiveness of the service provider in every single interaction, and c) the ability of the product or service to solve my problem.

Low quality products have little value. Those items that you bought at the dollar store over the weekend have a low quality. They might have solved your immediate problem, but if/when they break, you won’t be crying about it. Responsiveness (listening) builds value; when the barista at the coffee house remembers my coffee and preps it when I walk in the coffee house, I become a loyal customer. Finally, products / services have to solve problems. Every single company needs to understand that they are in the problem-solving business.

When you choose to segment your offerings into separate items, in some cases you are actually making it harder for your customers to deal with you. You are punishing them instead of rewarding them.

How about this – all flyers get one checked bag free. Always. On every route. If they show up to the check-in counter without a checked bag, you instantly give them a $20 voucher that can be applied to their next flight. Fully transferable and always redeemable. Let customers use as many of them together as they like! This would be seen as a massive bonus, a victory instead of a punishment.

Charge people once, then pile on all of the products and services that give greater quality, that show me you’re listening, and that solve my problems.

Porter Airlines has figured this out. Porter is a regional airline that has chosen very specific routes to maximize passengers and minimize costs. They use the same planes on most/all of their routes. Very efficient. When you purchase a ticket to fly on Porter, you get the flight, two carry-on bags, one checked bag, in-flight snacks and beverage (both non-alcoholic and alcoholic) all included. Everything you need to get from, say, Toronto to Boston is included. No additional fees, no extra costs. This also means that each time you see a Porter staff member, their only role is to make sure your travel is smooth and to thank you for flying Porter Airlines.

Businesses have the opportunity to create offerings, but customers always determine the value. Every single time business makes it harder or put the work back on the customer, the value of the offering suffers.

Value is a perception, not an equation.

1 comment:

  1. I hear you about the comments regarding loyalty. There was one manager in Hinton at the McDonalds who knew my order and would always have it ready for me when I got to the counter. One time, it was super busy (15 people or so in front of the counter). She saw me, gave me a nod, I nodded back and it was ready. The cashier was like WTF just happened when it showed up beside her as I walked up and my friend who with me was even more surprised.

    She left the McDonalds not long after, but I would see her at other places around Hinton and she would always ask if I was stopping for a Double Quarter Pounder w/Cheese meal, coke for a drink (even when she worked at Boston Pizza).

    Mark

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